Proposed Exemptions; NatWest Securities Corporation, Inc.

DEPARTMENT OF LABOR

[Application No. D-9681, et al.]

Proposed Exemptions; NatWest Securities Corporation, Inc.

AGENCY: Pension and Welfare Benefits Administration, Labor.

ACTION: Notice of Proposed Exemptions.

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SUMMARY: This document contains notices of pendency before the

Department of Labor (the Department) of proposed exemptions from

certain of the prohibited transaction restriction of the Employee

Retirement Income Security Act of 1974 (the Act) and/or the Internal

Revenue Code of 1986 (the Code).

Written Comments and Hearing Requests

Unless otherwise stated in the Notice of Proposed Exemption, all

interested persons are invited to submit written comments, and with

respect to exemptions involving the fiduciary prohibitions of section

406(b) of the Act, requests for hearing within 45 days from the date of

publication of this Federal Register notice. Comments and request for a

hearing should state: (1) The name, address, and telephone number of

the person making the comment or request, and (2) the nature of the

person's interest in the exemption and the manner in which the person

would be adversely affected by the exemption. A request for a hearing

must also state the issues to be addressed and include a general

description of the evidence to be presented at the hearing. A request

for a hearing must also state the issues to be addressed and include a

general description of the evidence to be presented at the hearing.

ADDRESSES: All written comments and request for a hearing (at least

three copies) should be sent to the Pension and Welfare Benefits

Administration, Office of Exemption Determinations, room N-5649, U.S.

Department of Labor, 200 Constitution Avenue, NW., Washington, DC

20210. Attention: Application No. stated in each Notice of Proposed

Exemption. The applications for exemption and the comments received

will be available for public inspection in the Public Documents Room of

Pension and Welfare Benefits Administration, U.S. Department of Labor,

room N-5507, 200 Constitution Avenue, NW., Washington, DC 20210.

Notice to Interested Persons

Notice of the proposed exemptions will be provided to all

interested persons in the manner agreed upon by the applicant and the

Department within 15 days of the date of publication in the Federal

Register. Such notice shall include a copy of the notice of proposed

exemption as published in the Federal Register and shall inform

interested persons of their right to comment and to request a hearing

(where appropriate).

SUPPLEMENTARY INFORMATION: The proposed exemptions were requested in

applications filed pursuant to section 408(a) of the Act and/or section

4975(c)(2) of the Code, and in accordance with procedures set forth in

29 CFR part 2570, subpart B (55 FR 32836, 32847, August 10, 1990).

Effective December 31, 1978, section 102 of Reorganization Plan No. 4

of 1978 (43 FR 47713, October 17, 1978) transferred the authority of

the Secretary of the Treasury to issue exemptions of the type requested

to the Secretary of Labor. Therefore, these notices of proposed

exemption are issued solely by the Department.

The applications contain representations with regard to the

proposed exemptions which are summarized below. Interested persons are

referred to the applications on file with the Department for a complete

statement of the facts and representations.

NatWest Securities Corporation, Inc. (NatWest) Located in New York, New

York

[Application No. D-9681]

Proposed Exemption

I. Transactions

A. Effective December 22, 1993, the restrictions of sections 406(a)

and 407(a) of the Act and the taxes imposed by section 4975(a) and (b)

of the Code by reason of section 4975(c)(1)(A) through (D) of the Code

shall not apply to the following transactions involving trusts and

certificates evidencing interests therein:

(1) The direct or indirect sale, exchange or transfer of

certificates in the initial issuance of certificates between the

sponsor or underwriter and an employee benefit plan when the sponsor,

servicer, trustee or insurer of a trust, the underwriter of the

certificates representing an interest in the trust, or an obligor is a

party in interest with respect to such plan;

(2) The direct or indirect acquisition or disposition of

certificates by a plan in the secondary market for such certificates;

and

(3) The continued holding of certificates acquired by a plan

pursuant to subsection I.A.(1) or (2).

Notwithstanding the foregoing, section I.A. does not provide an

exemption from the restrictions of sections 406(a)(1)(E), 406(a)(2) and

407 for the acquisition or holding of a certificate on behalf of an

Excluded Plan by any person who has discretionary authority or renders

investment advice with respect to the assets of that Excluded Plan.\1\

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\1\Section I.A. provides no relief from sections 406(a)(1)(E),

406(a)(2) and 407 for any person rendering investment advice to an

Excluded Plan within the meaning of section 3(21)(A)(ii) and

regulation 29 CFR 2510.3-21(c).

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B. Effective December 22, 1993, the restrictions of sections

406(b)(1) and 406(b)(2) of the Act and the taxes imposed by section

4975(a) and (b) of the Code by reason of section 4975(c)(1)(E) of the

Code shall not apply to:

(1) The direct or indirect sale, exchange or transfer of

certificates in the initial issuance of certificates between the

sponsor or underwriter and a plan when the person who has discretionary

authority or renders investment advice with respect to the investment

of plan assets in the certificates is (a) an obligor with respect to 5

percent or less of the fair market value of obligations or receivables

contained in the trust, or (b) an affiliate of a person described in

(a); if:

(i) The plan is not an Excluded Plan;

(ii) solely in the case of an acquisition of certificates in

connection with the initial issuance of the certificates, at least 50

percent of each class of certificates in which plans have invested is

acquired by persons independent of the members of the Restricted Group

and at least 50 percent of the aggregate interest in the trust is

acquired by persons independent of the Restricted Group;

(iii) A plan's investment in each class of certificates does not

exceed 25 percent of all of the certificates of that class outstanding

at the time of the acquisition; and

(iv) Immediately after the acquisition of the certificates, no more

than 25 percent of the assets of a plan with respect to which the

person has discretionary authority or renders investment advice are

invested in certificates representing an interest in a trust containing

assets sold or serviced by the same entity.\2\ For purposes of this

paragraph B.(1)(iv) only, an entity will not be considered to service

assets contained in a trust if it is merely a subservicer of that

trust;

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\2\For purposes of this exemption, each plan participating in a

commingled fund (such as a bank collective trust fund or insurance

company pooled separate account) shall be considered to own the same

proportionate undivided interest in each asset of the commingled

fund as its proportionate interest in the total assets of the

commingled fund as calculated on the most recent preceding valuation

date of the fund.

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(2) The direct or indirect acquisition or disposition of

certificates by a plan in the secondary market for such certificates,

provided that the conditions set forth in paragraphs B.(1)(i), (iii)

and (iv) are met; and

(3) The continued holding of certificates acquired by a plan

pursuant to subsection I.B.(1) or (2).

C. Effective December 22, 1993, the restrictions of sections

406(a), 406(b) and 407(a) of the Act, and the taxes imposed by section

4975 (a) and (b) of the Code by reason of section 4975(c) of the Code,

shall not apply to transactions in connection with the servicing,

management and operation of a trust; provided:

(1) Such transactions are carried out in accordance with the terms

of a binding pooling and servicing arrangement; and

(2) The pooling and servicing agreement is provided to, or

described in all material respects in the prospectus or private

placement memorandum provided to, investing plans before they purchase

certificates issued by the trust.\3\

\3\In the case of a private placement memorandum, such

memorandum must contain substantially the same information that

would be disclosed in a prospectus if the offering of the

certificates were made in a registered public offering under the

Securities Act of 1933. In the Department's view, the private

placement memorandum must contain sufficient information to permit

plan fiduciaries to make informed investment decisions.

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Notwithstanding the foregoing, section I.C. does not provide an

exemption from the restrictions of section 406(b) of the Act or from

the taxes imposed by reason of section 4975(c) of the Code for the

receipt of a fee by a servicer of the trust from a person other than

the trustee or sponsor, unless such fee constitutes a ``qualified

administrative fee'' as defined in section III.S.

D. Effective December 22, 1993, the restrictions of sections 406(a)

and 407(a) of the Act, and the taxes imposed by sections 4975 (a) and

(b) of the Code by reason of sections 4975(c)(1) (A) through (D) of the

Code, shall not apply to any transactions to which those restrictions

or taxes would otherwise apply merely because a person is deemed to be

a party in interest or disqualified person (including a fiduciary) with

respect to a plan by virtue of providing services to the plan (or by

virtue of having a relationship to such service provider described in

section 3(14) (F), (G), (H) or (I) of the Act or section 4975(e)(2)

(F), (G), (H) or (I) of the Code), solely because of the plan's

ownership of certificates.

II. General Conditions

A. The relief provided under part I is available only if the

following conditions are met:

(1) The acquisition of certificates by a plan is on terms

(including the certificate price) that are at least as favorable to the

plan as they would be in an arm's length transaction with an unrelated

party;

(2) The rights and interests evidenced by the certificates are not

subordinated to the rights and interests evidenced by other

certificates of the same trust;

(3) The certificates acquired by the plan have received a rating at

the time of such acquisition that is in one of the three highest

generic rating categories from either Standard & Poor's Corporation

(S&P's), Moody's Investors Service, Inc. (Moody's), Duff & Phelps Inc.

(D&P) or Fitch Investors Service, Inc. (Fitch);

(4) The trustee is not an affiliate of any member of the Restricted

Group. However, the trustee shall not be considered to be an affiliate

of a servicer solely because the trustee has succeeded to the rights

and responsibilities of the servicer pursuant to the terms of a pooling

and servicing agreement providing for such succession upon the

occurrence of one or more events of default by the servicer;

(5) The sum of all payments made to and retained by the

underwriters in connection with the distribution or placement of

certificates represents not more than reasonable compensation for

underwriting or placing the certificates; the sum of all payments made

to and retained by the sponsor pursuant to the assignment of

obligations (or interests therein) to the trust represents not more

than the fair market value of such obligations (or interests); and the

sum of all payments made to and retained by the servicer represents not

more than reasonable compensation for the servicer's services under the

pooling and servicing agreement and reimbursement of the servicer's

reasonable expenses in connection therewith; and

(6) The plan investing in such certificates is an ``accredited

investor'' as defined in Rule 501(a)(1) of Regulation D of the

Securities and Exchange Commission under the Securities Act of 1933.

B. Neither any underwriter, placement agent, sponsor, trustee,

servicer, insurer, or any obligor, unless it or any of its affiliates

has discretionary authority or renders investment advice with respect

to the plan assets used by a plan to acquire certificates, shall be

denied the relief provided under Part I, if the provision of subsection

II.A.(6) above is not satisfied with respect to acquisition or holding

by a plan of such certificates, provided that (1) such condition is

disclosed in the prospectus or private placement memorandum; and (2) in

the case of a private placement of certificates, the trustee obtains a

representation from each initial purchaser which is a plan that it is

in compliance with such condition, and obtains a covenant from each

initial purchaser to the effect that, so long as such initial purchaser

(or any transferee of such initial purchaser's certificates) is

required to obtain from its transferee a representation regarding

compliance with the Securities Act of 1933, any such transferees will

be required to make a written representation regarding compliance with

the condition set forth in subsection II.A.(6) above.

III. Definitions

For purposes of this exemption:

A. Certificate means:

(1) A certificate

(a) That represents a beneficial ownership interest in the assets

of a trust; and

(b) That entitles the holder to pass-through payments of principal,

interest, and/or other payments made with respect to the assets of such

trust; or

(2) A certificate denominated as a debt instrument--

(a) That represents an interest in a Real Estate Mortgage

Investment Conduit (REMIC) within the meaning of section 860D(a) of the

Internal Revenue Code of 1986; and

(b) That is issued by and is an obligation of a trust; with respect

to certificates defined in (1) and (2) for which NatWest or any of its

affiliates which is subject to the jurisdiction of the United States

courts is either (i) the sole underwriter or the manager or co-manager

of the underwriting syndicate, or (ii) a selling or placement agent.

For purposes of this exemption, references to ``certificates

representing an interest in a trust'' include certificates denominated

as debt which are issued by a trust.

B. Trust means an investment pool, the corpus of which is held in

trust in the United States and consists solely of:

(1) Either

(a) Secured consumer receivables that bear interest or are

purchased at a discount (including, but not limited to, home equity

loans and obligations secured by shares issued by a cooperative housing

association);

(b) Secured credit instruments that bear interest or are purchased

at a discount in transactions by or between business entities

(including, but not limited to, qualified equipment notes secured by

leases, as defined in section III.T);

(c) Obligations that bear interest or are purchased at a discount

and which are secured by single-family residential, multi-family

residential and commercial real property, (including obligations

secured by leasehold interests on commercial real property);

(d) Obligations that bear interest or are purchased at a discount

and which are secured by motor vehicles or equipment, or qualified

motor vehicle leases (as defined in section III.U);

(e) ``Guaranteed governmental mortgage pool certificates,'' as

defined in 29 CFR 2510.3-101(i)(2);

(f) Fractional undivided interests in any of the obligations

described in clauses (a)-(e) of this section B.(1);

(2) Property which had secured any of the obligations described in

subsection B.(1);

(3) Undistributed cash or temporary investments made therewith

maturing no later than the next date on which distributions are to be

made to certificateholders; and

(4) rights of the trustee under the pooling and servicing

agreement, and rights under any insurance policies, third-party

guarantees, contracts of suretyship and other credit support

arrangements with respect to any obligations described in subsection

B.(1).

Notwithstanding the foregoing, the term ``trust'' does not include any

investment pool unless: (1) The investment pool consists only of assets

of the type which have been included in other investment pools, (ii)

certificates evidencing interests in such other investment pools have

been rated in one of the three highest generic rating categories by

S&P's, Moody's, D&P, or Fitch for at least one year prior to the plan's

acquisition of certificates pursuant to this exemption.

C. Underwriter means:

(1) NatWest;

(2) Any person directly or indirectly, through one or more

intermediaries, controlling, controlled by or under common control with

NatWest; or

(3) Any member of an underwriting syndicate or selling group of

which NatWest or a person described in (2) is a manager or co-manager

with respect to the certificates.

D. Sponsor means the entity that organizes a trust by depositing

obligations therein in exchange for certificates.

E. Master Service means the entity that is a party to the pooling

and servicing agreement relating to trust assets and is fully

responsible for servicing, directly or through subservicers, the assets

of the trust.

F. Subservicer means an entity which, under the supervision of and

on behalf of the master servicer, services receivables contained in the

trust, but is not a party to the pooling and servicing agreement.

G. Servicer means any entity which services receivables contained

in the trust, including the master servicer and any subservicer.

H. Trustee means the trustee of the trust, and in the case of

certificates which are denominated as debt instruments, also means the

trustee of the indenture trust.

I. Insurer means the insurer or guarantor of, or provider of other

credit support for, a trust.

Notwithstanding the foregoing, a person is not an insurer solely

because it holds securities representing an interest in a trust which

are of a class subordinated to certificates representing an interest in

the same trust.

J. Obligor means any person, other than the insurer, that is

obligated to make payments with respect to any obligation or receivable

included in the trust. Where a trust contains qualified motor vehicle

leases or qualified equipment notes secured by leases, obligor shall

also include any owner of property subject to any lease included in the

trust, or subject to any lease securing an obligation included in the

trust.

K. Excluded Plan means any plan with respect to which any member of

the Restricted Group is a ``plan sponsor'' within the meaning of

section 3(16)(B) of the Act.

L. Restricted Group with respect to a class of certificates means:

(1) Each underwriter;

(2) Each insurer;

(3) The sponsor;

(4) The trustee;

(5) Each servicer;

(6) Any obligor with respect to obligations or receivables included

in the trust constituting more than 5 percent of the aggregate

unamortized principal balance of the assets in the trust, determined on

the date of the initial issuance of certificates by the trust; or

(7) Any affiliate of a person described in (1)-(6) above.

M. Affiliate of another person includes:

(1) Any person directly or indirectly, through one or more

intermediaries, controlling, controlled by, or under common control

with such other person;

(2) Any officer, director, partner, employee, relative (as defined

in section 3(15) of the Act), a brother, a sister, or a spouse of a

brother or sister of such other person; and

(3) Any corporation or partnership of which such other person is an

officer, director or partner.

N. Control means the power to exercise a controlling influence over

the management or policies of a person other than an individual.

O. A person will be ``independent'' of another person only if:

(1) Such person is not an affiliate of that other person; and

(2) The other person, or an affiliate thereof, is not a fiduciary

who has investment management authority or renders investment advice

with respect to any assets of such person.

P. Sale includes the entrance into a forward delivery commitment

(as defined in section Q below), provided:

(1) The terms of the forward delivery commitment (including any fee

paid to the investing plan) are no less favorable to the plan than they

would be in an arm's length transaction with an unrelated party;

(2) The prospectus or private placement memorandum is provided to

an investing plan prior to the time the plan enters into the forward

delivery commitment; and

(3) At the time of the delivery, all conditions of this exemption

applicable to sales are met.

Q. Forward delivery commitment means a contract for the purchase of

sale of one or more certificates to be delivered at an agreed future

settlement date. The term includes both mandatory contracts (which

contemplate obligatory delivery and acceptance of the certificates) and

optional contracts (which give one party the right but not the

obligation to deliver certificates to, or demand delivery of

certificates from, the other party).

R. Reasonable compensation has the same meaning as that term is

defined in 29 CFR 2550.408c-2.

S. Qualified Administrative Fee means a fee which meets the

following criteria:

(1) The fee is triggered by an act or failure to act by the obligor

other than the normal timely payment of amounts owing in respect of the

obligations;

(2) The servicer may not charge the fee absent the act or failure

to act referred to in (1);

(3) The ability to charge the fee, the circumstances in which the

fee may be charged, and an explanation of how the fee is calculated are

set forth in the pooling and servicing agreement; and

(4) The amount paid to investors in the trust will not be reduced

by the amount of any such fee waived by the servicer.

T. Qualified Equipment Note Secured By A Lease means an equipment

note:

(a) Which is secured by equipment which is leased;

(b) Which is secured by the obligation of the lessee to pay rent

under the equipment lease; and

(c) With respect to which the trust's security interest in the

equipment is at least as protective of the rights of the trust as the

trust would have if the equipment note were secured only by the

equipment and not the lease.

U. Qualified Motor Vehicle Lease means a lease of a motor vehicle

where:

(a) The trust holds a security interest in the lease;

(b) The trust holds a security interest in the leased motor

vehicle; and

(c) The trust's security interest in the leased motor vehicle is at

least as protective of the trust's rights as the trust would receive

under a motor vehicle installment loan contract.

V. Pooling and Servicing Agreement means the agreement or

agreements among a sponsor, a servicer and the trustee establishing a

trust. In the case of certificates which are denominated as debt

instruments, ``Pooling and Servicing Agreement'' also includes the

indenture entered into by the trustee of the trust issuing such

certificates and the indenture trustee.

EFFECTIVE DATE: This exemption, if granted, will be effective for

transactions occurring on or after December 22, 1993.

Summary of Facts and Representations

1. NatWest is a corporation incorporated under the laws of the

State of New York on March 28, 1986. NatWest, together with its

affiliate NatWest International Securities, Inc. (NatWest

International) is a broker-dealer registered as such under the

Securities and Exchange Act of 1934, as amended. NatWest is an indirect

wholly-owned subsidiary of National Westminster Bank Plc (NatWest Plc

U.K.), an English banking institution. NatWest Plc U.K. operates in the

United States through NatWest Bank Plc, N.Y. Branch (NatWest Bank Plc),

which is a New York State licensed branch of NatWest Plc U.K. It

derives its basic powers from the New York Banking law and is subject

to the supervision of the New York Banking Department.

NatWest Capital Markets Ltd. (NatWest Capital) and NatWest

Securities Ltd. (NatWest Securities) are registered and authorized as

broker-dealers in the United Kingdom. NatWest Plc U.K., through its

various affiliates, maintains a long-standing investment banking

presence in key financial centers around the world, and is active on a

global basis in dealing, making markets and distribution of a broad

range of debt and equity securities of both governmental and private

issuers, and has capabilities worldwide in corporate finance, financial

advisory, foreign exchange transactions and asset securitization.

NatWest Plc U.K., NatWest Bank Plc, and their non-U.S. affiliates

are active in structuring asset securitization transactions, both

within the U.S. and overseas, which can involve facilitating or

providing credit enhancement or placement agent services, in connection

with the issuance and placement of asset-backed instruments in the form

of medium-term notes, commercial paper or bank syndicated loans.

The U.K.-based NatWest affiliates have participated outside the

U.S. in the underwriting or placement of mortgage-backed securities

relating to U.K. mortgage loans.

Within the U.S., the underwriting and distribution activities of

the NatWest affiliates have been limited to acting in a pure brokerage

capacity for its U.S. institutional client base, and (through NatWest

Bank Plc) acting as placement agent. NatWest Bank Plc is authorized

under section 200 of the New York Banking to act as placement agent

with respect to mortgage-backed and asset-backed securities (as well as

other debt and equity securities). With respect to mortgage-backed or

asset-backed securities transactions, NatWest Bank Plc acted on

December 22, 1993, as the placement agent of certain privately placed

mortgage-backed pass-through certificates for SWP Mortgage Securities

Trust 1993-A, the assets of which consisted of multifamily apartment

building mortgage loans sold by SWP Depositor, Inc. to the trust.

NatWest requests that the exemption proposed herein apply to any and

all transactions relating to the sale, holding and transfer of the

pass-through certificates issued by that trust and the operation of

that trust, including the servicing of its assets.

With respect to distributions or placements within the U.S.,

NatWest Capital and NatWest Securities may act as placement agent or

underwriter (through the U.S.-based NatWest affiliates acting in an

agency capacity or as brokers) with respect to mortgage-backed and

asset-backed securities (as well as other debt and equity securities),

consistent with the Federal Reserve Board's Regulation K (12 CFR

section 211) and relevant U.S. securities laws and regulations. NatWest

and/or NatWest International may in the future be making application to

the Federal Reserve Board for authority (Section 20 Authority) and bank

regulatory approval to act as placement agent and to underwrite and

deal in mortgage-backed and asset-backed securities (as well as other

debt and equity securities) under Section 20 of the Glass-Steagall Act

(12 U.S.C. at 377). In the event that NatWest and/or NatWest

International make such application to the Federal Reserve Board and

receive Section 20 Authority, NatWest requests that the exemption

proposed herein apply to the private placement and underwriting

activities of NatWest and/or NatWest International.\4\

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\4\As described herein, the term ``NatWest'' refers to NatWest

and its affiliates unless the context otherwise requires.

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NatWest represents that any of its affiliates which acts as

underwriter or placement agent with respect to a transaction for which

the exemption proposed herein would be relied on will be subject to the

jurisdiction of the United States courts (either because it is a U.S.

entity, or, in the event that a foreign affiliate acts as underwriter

or placement agent with respect to any such transaction, because the

foreign affiliate will consent to personal jurisdiction in the U.S.

courts. NatWest represents that in the event a foreign affiliate of

NatWest acts as underwriter or placement agent, any sales of

certificates to a plan will be effected through a U.S. entity

(including NatWest or an affiliate) acting as an agent or broker.

Further, NatWest represents that all sales of certificates that are

effected in reliance on the exemption proposed herein will comply with

applicable federal and state law.

Trust Assets

2. NatWest seeks exemptive relief to permit plans to invest in

pass-through certificates representing undivided interests in the

following categories of trusts: (1) Single and multi-family residential

or commercial mortgage investment trusts;\5\ (2) motor vehicle

receivable investment trusts; (3) consumer or commercial receivables

investment trusts; and (4) guaranteed governmental mortgage pool

certificate investment trusts.\6\

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\5\The Department notes that Prohibited Transaction Exemption

(PTE) 83-1 (48 FR 895, January 7, 1983) a class exemption for

mortgage pool investment trusts, would generally apply to trusts

containing single-family residential mortgages, provided that the

applicable conditions of PTE 83-1 are met. NatWest and its

affiliates request relief for single-family residential mortgages in

this exemption because it would prefer one exemption for all trusts

of similar structure. However, NatWest and its affiliates have

stated that they may still avail themselves of the exemptive relief

provided by PTE 83-1.

\6\Guaranteed governmental mortgage pool certificates are

mortgage-backed securities with respect to which interest and

principal payable is guaranteed by the Governmental National

Mortgage Association (GNMA), the Federal Home Loan Mortgage

Corporation (FHLMC), or the Federal National Mortgage Association

(FNMA). The Department's regulation relating to the definition of

plan assets (29 CFR 2510.3-101(i)) provides that where a plan

acquires a guaranteed governmental mortgage pool certificate, the

plan's assets include the certificate and all of its rights with

respect to such certificate under applicable law, but do not, solely

by reason of the plan's holding of such certificate, include any of

the mortgages underlying such certificate. The applicant is

requesting exemptive relief for trusts containing guaranteed

governmental mortgage pool certificates because the certificates in

the trusts may be plan assets.

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3. Commercial mortgage investment trusts may include mortgages on

ground leases or real property. Commercial mortgages are frequently

secured by ground leases on the underlying property, rather than by fee

simple interests. The separation of the fee simple interest and the

ground lease interest is generally done for tax reasons. Properly

structured, the pledge of the ground lease to secure a mortgage

provides a lender with the same level of security as would be provided

by a pledge of the related fee simple interest. The terms of the ground

leases pledged to secure leasehold mortgages will in all cases be at

least ten years longer than the term of such mortgages.\7\

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\7\Trust assets may also include obligations that are secured by

leasehold interests on residential real property. See PTE 90-32

involving Prudential-Bache Securities, Inc. (55 FR 23147, June 6,

1990) at 23150.

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Trust Structure

4. Each trust is established under a pooling and servicing

agreement between a sponsor, a servicer and a trustee. The sponsor or

servicer of a trust selects assets to be included in the trust. These

assets are receivables which may have been originated, in the ordinary

course of business, by a sponsor or servicer of the trust, an affiliate

of the sponsor or servicer, or by an unrelated lender and subsequently

acquired by the trust sponsor or servicer.

On or prior to the closing date, the sponsor acquires legal title

to all assets selected for the trust, establishes the trust and

designates an independent entity as trustee. On the closing date, the

sponsor conveys to the trust legal title to the assets, and the trustee

issues certificates representing fractional undivided interests in the

trust assets. NatWest, or one or more broker-dealers (which may include

NatWest), acts (or may act in the future) as underwriter or placement

agent with respect to the sale of the certificates. In addition,

NatWest anticipates privately placing certificates on both a firm

commitment and an agency basis.

Certificateholders are entitled to receive monthly, quarterly or

semi-annually installments of principal and/or interest, or lease

payments due on the receivables, adjusted, in the case of payments of

interest, to a specified rate--the pass-through rate--which may be

fixed or variable.

When installments or payments are made on a semi-annual basis,

funds are not permitted to be commingled with the servicer's assets for

longer than would be permitted for a monthly-pay security. A segregated

account is established in the name of the trustee (on behalf of

certificateholders) to hold funds received between distribution dates.

The account is under the sole control of the trustee, who invests the

account's assets in short-term securities which have received a rating

comparable to the rating assigned to the certificates. In some cases,

the servicer may be permitted to make a single deposit into the account

once a month. When the servicer makes such monthly deposits, payments

received from obligors by the servicer may be commingled with the

servicer's assets during the month prior to deposit. In no event will

the period of time between the receipt of funds by the servicer and

deposit of these funds in a segregated account exceed 45 days.

Furthermore, in those cases where distributions are made semi-annually,

the servicer will furnish a report on the operation of the trust to the

trustee on a monthly basis. At or about the time this report is

delivered to the trustee, it will be made available to

certificateholders and delivered to or made available to each rating

agency that has rated the certificates.

5. Some of the certificates will be multi-class certificates.

NatWest requests exemptive relief for two types of multi-class

certificates: ``Strip'' certificates and ``fast-pay/slow-pay''

certificates. Strip certificates are a type of security in which the

stream of interest payments on receivables is split from the flow of

principal payments and separate classes of certificates are

established, each representing rights to disproportionate payments of

principal and interest.\8\

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\8\It is the Department's understanding that where a plan

invests in REMIC ``residential'' interest certificates to which this

exemption applies, some of the income received by the plan as a

result of such investment may be considered unrelated business

taxable income to the plan, which is subject to income tax under the

Code. The Department emphasizes that the prudence requirements of

section 404(a)91)(B) of the Act would require plan fiduciaries to

carefully consider this and other tax consequences prior to causing

plan assets to be invested in certificates pursuant to this

exemption.

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``Fast-pay/slow-pay'' certificates involve the issuance of classes

of certificates having different stated maturities or the same

maturities with different payment schedules. Interest and/or principal

payments received on the underlying receivables are distributed first

to the class of certificates having the earliest stated maturity of

principal and/or earlier payment schedule, and only when that class of

certificates has been paid in full (or has received a specified amount)

will distributions be made with respect to the second class of

certificates. Distributions on certificates having later stated

maturities will proceed in like manner until all the certificateholders

have been paid in full. The only difference between this multi-class

pass-through arrangement and a single-class pass-through arrangement is

the order in which distributions are made to certificateholders. In

each case, certificateholders will have a beneficial ownership interest

in the underlying assets. In neither case will the rights of a plan

purchasing certificates be subordinated to the rights of another

certificateholder in the event of default on any of the underlying

obligations. In particular, if the amount available for distribution to

certificateholders is less than the amount required to be so

distributed, all senior certificateholders will share in the amount

distributed on pro rata basis.\9\

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\9\If a trust issue subordinate certificates, holders of such

subordinate certificates may not share in the amount distributed on

a pro rata basis. The Department notes that the exemption does not

provide relief for plan investment in such subordinated

certificates.

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6. For tax reasons, the trust must be maintained as an essentially

passive entity. Therefore, both the sponsor's discretion and the

servicer's discretion with respect to assets included in a trust are

severely limited. Pooling and servicing agreements provide for the

substitution of receivables by the sponsor only in the event of defects

in documentation discovered within a short time after the issuance of

trust certificates (within 120 days, except in the case of obligations

having an original term of 30 years, in which case the period will not

exceed two years). Any receivable so substituted is required to have

characteristics substantially similar to the replaced receivable and

will be at least as creditworthy as the replaced receivable.

In some cases, the affected receivable would be repurchased, with

the purchase price applied as a payment on the affected receivable and

passed through to certificateholders.

Parties to Transactions

7. The originator of a receivable is the entity that initially

lends money to a borrower (obligor), such as a homeowner or automobile

purchaser, or leases property to a lessee. The originator may either

retain a receivable in its portfolio or sell it to a purchaser, such as

a trust sponsor.

Originators of receivables included in the trusts will be entities

that originate receivables in the ordinary course of their business,

including finance companies, for whom such origination constitutes the

bulk of their operations, financial institutions for whom such

origination constitutes a substantial part of their operations, and any

kind of manufacturer, merchant, or service enterprise for whom such

origination is an incidental part of its operations. Each trust may

contain assets of one or more originators. The originator of the

receivables may also function as the trust sponsor or servicer.

8. The sponsor will be one of three entities: (i) A special-purpose

or other corporation unaffiliated with the servicer, (ii) a special-

purpose or other corporation affiliated with the servicer, or (iii) the

servicer itself. Where the sponsor is not also the servicer, the

sponsor's role will generally be limited to acquiring the receivables

to be included in the trust, establishing the trust, designating the

trustee, and assigning the receivables to the trust.

9. The trustee of a trust is the legal owner of the obligations in

the trust. The trustee is also a party to or beneficiary of all the

documents and instruments deposited in the trust, and as such is

responsible for enforcing all the rights created thereby in favor of

certificateholders.

The trustee will be an independent entity, and therefore will be

unrelated to NatWest, the trust sponsor or the servicer. NatWest

represents that the trustee will be a substantial financial institution

or trust company experienced in trust activities. The trustee receives

a fee for its services, which will be paid by the sponsor or servicer.

The method of compensating the trustee will be specified in the pooling

and servicing agreement and disclosed in the prospectus or private

placement memorandum relating to the offering of the certificates.

10. The servicer of a trust administers the receivables on behalf

of the certificateholders. The servicer's functions typically involve,

among other things, notifying borrowers of amounts due on receivables,

maintaining records of payments received on receivables and instituting

foreclosure or similar proceedings in the event of default. In cases

where a pool of receivables has been purchased from a number of

different originators and deposited in a trust, it is common for the

receivables to be ``subserviced'' by their respective originators and

for a single entity to ``master service'' the pool of receivables on

behalf of the owners of the related series of certificates. Where this

arrangement is adopted, a receivable continues to be serviced from the

perspective of the borrower by the local subservicer, while the

investor's perspective is that the entire pool of receivables is

serviced by a single, central master servicer who collects payments

from the local subservicers and passes them through to

certificateholders.

Receivables of the type suitable for inclusion in a trust

invariably are serviced with the assistance of a computer. After the

sale, the servicer keeps the sold receivables on the computer system in

order to continue monitoring the accounts. Although the records

relating to sold receivables are kept in the same master file as

receivables retrained by the originator, the sold receivables are

flagged as having been sold. To protect the investors' interest, the

servicer ordinarily covenants that this ``sold flag'' will be included

in all records relating to the sold receivables, including the master

file, archives, tape extracts, and printouts.

The sold flags are invisible to the obligor, and do not affect the

manner in which the servicer performs the billing, posting and

collection procedures relating to the sold receivables. However, the

servicer uses the sold flag to identify the receivables for the purpose

of reporting all activity on those receivables after their sale to the

investors.

Depending on the type of receivable and the details of the

servicer's computer system, in some cases the servicer's internal

reports can be adapted for investor reporting with little or no

modification. In other cases, the servicer may have to perform special

calculations to fulfill the investor reporting responsibilities. These

calculations can be performed on the servicer's main computer, or on a

small computer with data supplied by the main system. In all cases, the

numbers produced for the investors are reconciled to the servicer's

books and reviewed by public accountants.

The underwriter will be registered broker-dealer that acts as

underwriter or placement agent with respect to the sale of the

certificates. Public offerings of certificates are generally made on a

firm commitment or agency basis. Private placements of certificates may

be made on a firm commitment or agency basis.

It is anticipated that the lead or co-managing underwriter will

make a market in certificates offered to the public.

In some cases, the originator and servicer of receivables to be

included in a trust and the sponsor of the trust (though they

themselves may be related) will be unrelated to NatWest. In other

cases, however, NatWest (directly or through one or more of its U.S.

banking affiliates) may originate or service receivables included in a

trust, or may sponsor a trust.

Certificate Price, Pass-Through Rate and Fees

11. In some cases, the sponsor will obtain the receivables from

various originators pursuant to existing contracts with such

originators under which the sponsor will purchase the receivables at

fair market value from originator or a finance company pursuant to a

purchase and sale agreement related to the specific offering of

certificates. In other cases, the sponsor will originate the

receivables itself.

As compensation for the receivables transferred to the trust, the

sponsor receives cash, or certificates representing the entire

beneficial interest in the trust. The sponsor sells some or all of

these certificates for cash to investors or securities underwriters.

12. The price of the certificates, both in the initial offering and

in the secondary market, is affected by market forces including

investor demand, the pass-through interest rate on the certificates in

relation to the rate payable on investments of similar types and

quality, expectations as to the effect on yield resulting from

prepayment of underlying receivables, and expectations as to the

likelihood of timely payment.

The pass-through rate for certificates is equal to the interest

rate on receivables included in the trust minus a specified servicing

fee.\10\ This rate is generally determined by the same market forces

that determine the price of a certificate. The price of a certificate

and its pass-through, or coupon rate, together determine the yield to

investors. If an investor purchases a certificate at less than par,

that discount augments the stated pass-through rate; conversely, a

certificate purchased at a premium yields less than the stated coupon.

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\10\The pass-through rate on certificates representing interests

in trusts holding leases is determined by breaking down lease

payments, into ``principal'' and ``interest'' components based on an

implicit interest rate.

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13. As compensation for performing its servicing duties, the

servicer (who may also be the sponsor or an affiliate thereof, and

receive fees for acting as sponsor) will retain the difference between

payments received on the receivables in the trust and payments payable

(at the pass-through rate) to certificateholders, except that in some

cases a portion of the payments on receivables may be paid to a third

party, such as a fee paid to a provider of credit support. The servicer

may receive additional compensation by having the use of the amounts

paid on the receivables between the time they are received by the

servicer and the time they are due to the trust (which time is set

forth in the pooling and servicing agreement). The servicer, typically

will be required to pay the administrative expenses of servicing the

trust, including in some cases the trustee's fee, out of its servicing

compensation.

The servicer is also compensated to the extent it may provide

credit enhancement to the trust or otherwise arrange to obtain credit

support from another party. This ``credit support fee'' may be

aggregated with other servicing fees, and is either paid in a lump sum

at the time the trust is established, or out of the interest income

received on the receivables in excess of the pass-through rate.

14. The servicer may be entitled to retain certain administrative

fees paid by a third party usually the obligor. These administrative

fees fall into three categories: (a) prepayment fees; (b) late payment

and payment extension fees; and (c) expenses, fees and charges

associated with foreclosure or repossession, or other conversion of a

secured position into cash proceeds, upon default of an obligation.

Compensation payable to the servicer will be set forth or referred

to in the pooling and servicing agreement and described in reasonable

detail in the prospectus or private placement memorandum relating to

the certificates.

15. Payments on receivables may be made by obligors to the servicer

at various times during the period preceding any date on which pass-

through payments to the trust are due. In some cases, the pooling and

servicing agreement may permit the servicer to place these payments in

non-interest bearing accounts in itself or to commingle such payments

with its own funds prior to the distribution dates. In these cases, the

servicer would be entitled to the benefit derived from the use of the

funds between the date of payment on a receivable and the pass-through

date. Commingled payments may not be protected from the creditors of

the servicer in the event of the servicer's bankruptcy or receivership.

In those instances when payments on receivables are held in non-

interest bearing accounts or are commingled with the servicer's own

funds, the servicer is required to deposit these payments by a data

specified in the pooling and servicing agreement into an account from

which the trustee makes payments to certificateholders.

16. The underwriter will receive a fee in connection with the

securities underwriting or private placement of certificates. In a fir

commitment underwriting this fee would consist of the difference

between what the underwriter receives for the certificates that it

distributes and what it pays the sponsor for those certificates. In a

private placement, the fee normally takes the form of an agency

commission paid by the sponsor. In a best efforts underwriting in which

the underwriter would sell certificates in a public offering on an

agency basis, the underwriter would receive an agency commission rather

than a fee based on the difference between the price at which the

certificates are sold to the public and what it pays the sponsor. In

some private placements the underwriter may buy certificates as

principal, in which case its compensation would be the difference

between what it receives for the certificates that it sells and what it

pays the sponsor for these certificates.

Purchase of Receivables by the Servicer

17. The applicant represents that as the principal amount of the

receivables in a trust is reduced by payment, the cost of administering

the trust generally increases, making the servicing of the trust

prohibitively expensive at some point. Consequently the pooling and

servicing agreement generally provides that the servicer may purchase

the receivables included in the trust when the aggregate unpaid balance

payable on the receivables is reduced to a specified percentage

(usually between 5 and 10 percent) of the initial balance.

The repurchase price for such an option is set at a level such that

the certificateholders will receive the full amount on all of the

receivables held by the trust plus the accrued interest at the pass-

through rate plus the full amount of property, if any, that has been

required by the trust through collections on or liquidations of the

receivables.

Certificate Ratings

18. The certificates will have received one of the three highest

ratings available from either S&P's, Moody's, D&P or Fitch. Insurance

or other credit support (such as overcollateralization, surety bonds,

letter of credit or guarantees) will be obtained by the trust sponsor

to the extent necessary for the certificates to attain the desired

rating. The amount of this credit support is set by the rating agencies

at a level that is a multiple of the worst historical net credit loss

experience for the type of obligations included in the issuing trust.

Provision of Credit Support

19. In some cases, the master servicer, or an affiliate of the

master servicer, may provide credit support to the trust (i.e., act as

an insurer). In these cases, the master servicer, in its capacity as

servicer, will first advance funds to the full extent that it

determines that such advances will be recoverable (a) out of late

payments by the obligors, (b) from the credit support provider (which

may be itself) or, (c) in the case of a trust that issues subordinated

certificates, from amounts otherwise distributable to holders of

subordinated certificates, and the master servicer will advance such

funds in a timely manner. In some transactions, the master servicer may

not be obligated to advance funds, but instead would be called upon to

provide funds to cover defaulted payments to the full extent of its

obligations as insurer. Moreover, a master servicer typically can

recover advances either from the provider of credit support or from the

future payment stream. When the servicer is the provider of the credit

support and provides its own funds to cover defaulted payments, it will

do so either on the initiative of the trustee, or on its own initiative

on behalf of the trustee, but in either event it will provide such

funds to cover payments to the full extent of its obligations under the

credit support mechanism.

If the master servicer fails to advance funds, fails to call upon

the credit support mechanism to provide funds to cover defaulted

payments, or otherwise fails in its duties, the trustee would be

required and would be able to enforce the certificateholders' rights,

as both a party to the pooling and servicing agreement and the owner of

the trust estate, including rights under the credit support mechanism.

Therefore, the trustee, who is independent of the servicer, will have

the ultimate right to enforce the credit support arrangement.

When a master servicer advances funds, the amount so advanced is

recoverable by the master servicer out of future payments on

receivables held by the trust to the extent not covered by credit

support. However, where the master servicer provides credit support to

the trust, there are protections in place to guard against a delay in

calling upon the credit support to take advantage of the fact that the

credit support declines proportionally with the decrease in the

principal amount of the obligations in the trust as payments on

receivables are passed through to investors. These safeguards include:

(a) There is often a disincentive to postponing credit losses

because the sooner repossession or foreclosure activities are

commenced, the more value that can be realized on the security for the

obligation;

(b) The master servicer has servicing guidelines which include a

general policy as to the allowable delinquency period after which an

obligation ordinarily will be deemed uncollectible. The pooling and

servicing agreement will require the master servicer to follow its

normal servicing guidelines and will set forth the master servicer's

general policy as to the period of time after which delinquent

obligations ordinarily will be considered uncollectible;

(c) As frequently as payments are due on the receivables included

in the trust (monthly, quarterly, or semi-annually as set forth in the

pooling and servicing agreement), the master servicer is required to

report to the independent trustee the amount of all past-due payments

and the amount of all servicer advances, along with other current

information as to collections on the receivables and draws upon the

credit support. Further, the master servicer is required to deliver to

the trustee annually a certificate of an executive officer of the

master servicer stating that a review of the servicing activities has

been made under such officer's supervision, and either stating that the

master servicer has fulfilled all of its obligations under the pooling

and servicing agreement or, if the master servicer has defaulted under

any of its obligations, specifying any such default. The master

servicer's reports are reviewed at least annually by independent

accountants to ensure that the master servicer is following its normal

servicing standards and that the master servicer's reports conform to

the master servicer's internal accounting records. The results of the

independent accountants' review are delivered to the trustee;

(d) The credit support has a ``floor'' dollar amount that protects

investors against the possibility that a large number of credit losses

might occur towards the end of the life of the trust, whether due to

servicer advances or any other cause. Once the floor amount has been

reached, the master servicer lacks an incentive to postpone the

recognition of credit losses because the credit support amount becomes

a fixed dollar amount, subject to reduction only for actual draws. From

the time that the floor amount is effective until the end of the life

of the trust, there are no proportionate reductions in the credit

support amount caused by reductions in the pool principal balance.

Indeed, since the floor is a fixed dollar amount, the amount of credit

support ordinarily increases as a percentage of the pool principal

balance during the period that the floor is in effect. The protection

provided by a floor dollar amount to the credit support applies

particularly where the master servicer and the insurer are affiliated

or are the same entity. (An entity should not be considered as insurer

solely because it holds subordinated certificates.)

Disclosure

20. In connection with the original issuance of certificates, the

prospectus or private placement memorandum will be furnished to

investing plans. The prospectus or private placement memorandum will

contain information material to a fiduciary's decision to invest in the

certificates, including:

(a) Information concerning the payment terms of the certificates,

the rating of the certificates, and any material risk factors with

respect to the certificates;

(b) A description of the trust as a legal entity and a description

of how the trust was formed by the seller/servicer or other sponsor of

the transaction;

(c) Identification of the independent trustee for the trust;

(d) A description of the receivables contained in the trust,

including the types of receivables, the diversification of the

receivables, their principal terms and their material legal aspects;

(e) A description of the sponsor and servicer;

(f) A description of the pooling and servicing agreement, including

a description of the seller's principal representations and warranties

as to the trust assets and the trustee's remedy for any breach thereof;

a description of the procedures for collection of payments on

receivables and for making distributions to investors, and a

description of the accounts into which such payments are deposited and

from which such distributions are made; identification of the servicing

compensation and any fees for credit enhancement that are deducted from

payments on receivables before distributions are made to investors; a

description of periodic statements provided to the trustee, and

provided to or made available to investors by the trustee; and a

description of the events that constitute events of default under the

pooling and servicing contract and a description of the trustee's and

the investors' remedies incident thereto;

(g) A description of the credit support;

(h) A general discussion of the principal federal income tax

consequences of the purchase, ownership and disposition of the pass-

through securities by a typical investor;

(i) A description of the underwriters' and/or placement agent's

plan for distributing the pass-through securities to investors; and

(j) Information about the scope and nature of the secondary market,

if any, for the certificates.

21. Reports indicating the amount of payments of principal and

interest are provided to certificateholders at least as frequently as

distributions are made to certificateholders. Certificateholders will

also be provided with periodic information statements setting forth

material information concerning the underlying assets, including, where

applicable, information as to the amount and number of delinquent and

defaulted loans or receivables.

22. In the case of a trust that offers and sells certificates in a

registered public offering, the trustee, the servicer or the sponsor

will file such periodic reports as may be required to be filed under

the Securities Exchange Act of 1934. Although some trusts that offer

certificates in a public offering will file quarterly reports on Form

10-Q and Annual Reports on Form 10-K, many trusts obtain, by

application to the Securities and Exchange Commission, a complete

exemption from the requirement to file quarterly reports on Form 10-Q

and a modification of the disclosure requirements for annual reports on

Form 10-K. If such an exemption is obtained, these trusts normally

would continue to have the obligation to file current reports on Form

8-K to report material developments concerning the trust and the

certificates. While the Securities and Exchange Commission's

interpretation of the periodic reporting requirements is subject to

change, periodic reports concerning a trust will be filed to the extent

required under the Securities Exchange Act of 1934.

23. At or about the time distributions are made to

certificateholders, a report will be delivered to the trustee as to the

status of the trust and its assets, including underlying obligations.

Such report will typically contain information regarding the trust's

assets, payments received or collected by the servicer, the amount of

prepayments, delinquencies, servicer advances, defaults and

foreclosures, the amount of any payments made pursuant to any credit

support, and the amount of compensation payable to the servicer. Such

report also will be delivered to or made available to the rating agency

or agencies that have rated the trust's certificates.

In addition, promptly after each distribution date,

certificateholders will receive a statement prepared by the trustee

summarizing information regarding the trust and its assets. Such

statement will include information regarding the trust and its assets,

including underlying receivables. Such statement will typically contain

information regarding payments and prepayments, delinquencies, the

remaining amount of the guaranty or other credit support and a

breakdown of payments between principal and interest.

Forward Delivery Commitments

24. NatWest represents that, to date, it has not entered into any

forward delivery commitments in connection with the offering of pass-

through certificates. However, NatWest states that it may contemplate

entering into such commitments. NatWest notes that the utility of

forward delivery commitments has been recognized with respect to the

offering of similar certificates backed by pools of residential

mortgages. As such, NatWest states that it may find it desirable in the

future to enter into such commitments for the purchase of certificates.

Secondary Market Transactions

25. NatWest, to the extent it obtains Section 20 Authority (see

rep. 1, above) would normally attempt to make a market for securities

for which it is lead or co-managing underwriter in the future. It is

also NatWest's general policy to facilitate sales by investors who have

purchased certificates if NatWest has acted as placement agent in the

original placement of the certificates and if such investors request

NatWest's assistance. Such policy is in effect for the transaction

entered into on December 22, 1993, as to which NatWest Bank Plc acted

as placement agent.

Retroactive Relief

26. NatWest represents that it has engaged in one transaction

related to mortgage-backed and asset-backed securities (see rep 1,

above), based on the assumption that retroactive relief would not be

granted. NatWest represents that the transaction was entered into in

conformance with the exception contained in the Department's regulation

relating to the definition of plan assets (29 CFR 2510.3-101) which

applies where equity participation by benefit plan investors is not

``significant''. However, it is difficult to monitor whether the

percentage interest of plans in a trust is at all times not

``significant'' for purposes of that regulation. Accordingly, relief is

requested for transactions which have occurred on or after December 22,

1993.

Summary

27. In summary, the applicant represents that the transactions for

which exemptive relief is requested satisfy the statutory criteria of

section 408(a) of the Act due to the following:

(a) The trusts contain ``fixed pools'' of assets. There is little

discretion on the part of the trust sponsor to substitute receivables

contained in the trust once the trust has been formed;

(b) Certificates in which plans invest will have been rated in one

of the three highest rating categories by S&P's, Moody's, D&P or Fitch.

Credit support will be obtained to the extent necessary to attain the

desired rating;

(c) All transactions for which NatWest seeks exemptive relief will

be governed by the pooling and servicing agreement, which is made

available to plan fiduciaries for their review prior to the plan's

investment in certificates;

(d) Exemptive relief from sections 406(b) and 407 for sales to

plans is substantially limited; and

(e) NatWest anticipates that it will make a secondary market in

certificates with respect to which it acts as an underwriter in the

future.

Discussion of Proposed Exemption

I. Differences Between Proposed Exemption and Class Exemption PTE 83-1

The exemptive relief proposed herein is similar to that provided in

PTE 81-7 (46 FR 7520, January 23, 1981), Class Exemption for Certain

Transactions Involving Mortgage Pool Investment Trusts, amended and

restated as PTE 83-1 (48 FR 895, January 7, 1983).

PTE 83-1 applies to mortgage pool investment trusts consisting of

interest-bearing obligations secured by first or second mortgages or

deeds of trust on single-family residential property. The exemption

provides relief from sections 406(a) and 407 for the sale, exchange or

transfer in the initial issuance of mortgage pool certificates between

the trust sponsor and a plan, when the sponsor, trustee or insurer of

the trust is a party-in-interest with respect to the plan, and the

continued holding of such certificates, provided that the conditions

set forth in the exemption are met. PTE 83-1 also provides exemptive

relief from section 406 (b)(1) and (b)(2) of the Act for the above-

described transactions when the sponsor, trustee or insurer of the

trust is a fiduciary with respect to the plan assets invested in such

certificates, provided that additional conditions set forth in the

exemption are met. In particular, section 406(b) relief is conditioned

upon the approval of the transaction by an independent fiduciary.

Moreover, the total value of certificates purchased by a plan must not

exceed 25 percent of the amount of the issue, and at least 50 percent

of the aggregate amount of the issue must be acquired by persons

independent of the trust sponsor, trustee or insurer. Finally, PTE 83-1

provides conditional exemptive relief from section 406 (a) and (b) of

the Act for transactions in connection with the servicing and operation

of the mortgage trust.

Under PTE 83-1, exemptive relief for the above transactions is

conditioned upon the sponsor and the trustee of the mortgage trust

maintaining a system for insuring or otherwise protecting the pooled

mortgage loans and the property securing such loans, and for

indemnifying certificate holders against reductions in pass-through

payments due to defaults in loan payments or property damage. This

system must provide such protection and indemnification up to an amount

not less than the greater of one percent of the aggregate principal

balance of all trust mortgages or the principal balance of the largest

mortgage.

The exemptive relief proposed herein differs from that provided by

PTE 83-1 in the following major respects: (1) The proposed exemption

provides individual exemptive relief rather than class relief; (2) The

proposed exemption covers transactions involving trusts containing a

broader range of assets than single-family residential mortgages; (3)

Instead of requiring a system for insuring the pooled receivables, the

proposed exemption conditions relief upon the certificates having

received one of the three highest ratings available from S&P's,

Moody's, D&P or Fitch (insurance or other credit support would be

obtained only to the extent necessary for the certificates to attain

the desired rating); and (4) The proposed exemption provides more

limited section 406(b) and section 407 relief for sales transactions.

II. Rating of Certificates

After consideration of the representations of the applicant and

information provided by S&P's, Moody's, D&P and Fitch, the Department

has decided to condition exemptive relief upon the certificates having

attained a rating in one of the three highest generic rating categories

from S&P's, Moody's, D&P or Fitch. The Department believes that the

rating condition will permit the applicant flexibility in structuring

trusts containing a variety of mortgages and other receivables while

ensuring that the interests of plans investing in certificates are

protected. The Department also believes that the ratings are indicative

of the relative safety of investments in trusts containing secured

receivables. The Department is conditioning the proposed excemptive

relief upon each particular type of asset-backed security having been

rated in one of the three highest rating categories for at least one

year and having been sold to investors other than plans for at least

one year.\11\

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\11\In referring to different ``types'' of asset-backed

securities, the Department means certificates representing interests

in trusts containing different ``types'' of receivables, such as

single family residential mortgages, multi-family residential

mortgages, commercial mortgages, home equity loans, auto loan

receivables, installment obligations for consumer durable secured by

purchase money security interests, etc. The Department intends this

condition to require that certificates in which a plan invests are

of the type that have been rated (in one of the three highest

generic rating categories by S&P's, D&P, Fitch or Moody's) and

purchased by investors other than plans for at least one year prior

to the plan's investment pursuant to the proposed exemption. In this

regard, the Department does not intend to require that the

particular assets contained in a trust must have been ``seasoned''

(e.g., originated at least one year prior to the plan's investment

in the trust).

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III. Limited Section 406(b) and Section 407(a) Relief for Sales

NatWest represents that in some cases a trust sponsor, trustee,

servicer, insurer, and obligor with respect to receivables contained in

a trust, or an underwriter and/or placement agent of certificates may

be a pre-existing party in interest with respect to an investing

plan.\12\ In these cases, a direct or indirect sale or certificates by

that party in interest to the plan would be a prohibited sale or

exchange of property under section 406(a)(1)(A) of the Act.\13\

Likewise, issues are raised under section 406(a)(1)(D) of the Act where

a plan fiduciary causes a plan to purchase certificates where trust

funds will be used to benefit a party in interest.

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\12\In this regard, we note that the exemptive relief proposed

herein is limited to certificates with respect to which NatWest or

any of its affiliates is either: (a) The sole underwriter or manager

or comanager of the underwriting syndicate, or (b) a selling or

placement agent.

\13\The applicant represents that where a trust sponsor is an

affiliate of NatWest, sales to plans by the sponsor may be exempt

under PTE 75-1, part II (relating to purchases and sales of

securities by broker-dealers and their affiliates), if NatWest is

not a fiduciary with respect to plan assets to be invested in

certificates.

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Additionally, NatWest represents that a trust sponsor, servicer,

trustee, insurer, and obligor with respect to receivables contained in

a trust, or an underwriter and/or placement agent of certificates

representing an interest in a trust may be a fiduciary with respect to

an investing plan. NatWest represents that the exercise of fiduciary

authority by any of these parties to cause the plan to invest in

certificates representing an interest in the trust would violate

section 406(b)(1), and in some cases section 406(b)(2), of the Act.

Moreover, NatWest represents that to the extent there is a plan

asset ``look through'' to the underlying assets of a trust, the

investment in certificates by a plan covering employees of an obligor

under receivables contained in a trust may be prohibited by sections

406(a) and 407(a) of the Act.

After consideration of the issues involved, the Department has

determined to provide the limited sections 406(b) and 407(a) relief as

specified in the proposed exemption.

FOR FURTHER INFORMATION CONTACT: Gary H. Lefkowitz of the Department,

telephone (202) 219-8881. (This is not a toll-free number.)

General Information

The attention of interested persons is directed to the following:

(1) The fact that a transaction is the subject of an exemption

under section 408(a) of the Act and/or section 4975(c)(2) of the Code

does not relieve a fiduciary or other party in interest of disqualified

person from certain other provisions of the Act and/or the Code,

including any prohibited transaction provisions to which the exemption

does not apply and the general fiduciary responsibility provisions of

section 404 of the Act, which among other things require a fiduciary to

discharge his duties respecting the plan solely in the interest of the

participants and beneficiaries of the plan and in a prudent fashion in

accordance with section 404(a)(1)(b) of the act; nor does it affect the

requirement of section 401(a) of the Code that the plan must operate

for the exclusive benefit of the employees of the employer maintaining

the plan and their beneficiaries;

(2) Before an exemption may be granted under section 408(a) of the

Act and/or section 4975(c)(2) of the Code, the Department must find

that the exemption is administratively feasible, in the interests of

the plan and of its participants and beneficiaries and protective of

the rights of participants and beneficiaries of the plan;

(3) The proposed exemptions, if granted, will be supplemental to,

and not in derogation of, any other provisions of the Act and/or the

Code, including statutory or administrative exemptions and transitional

rules. Furthermore, the fact that a transaction is subject to an

administrative or statutory exemption is not dispositive of whether the

transaction is in fact a prohibited transaction; and

(4) The proposed exemptions, if granted, will be subject to the

express condition that the material facts and representations contained

in each application are true and complete and accurately describe all

material terms of the transaction which is the subject of the

exemption. In the case of continuing exemption transactions, if any of

the material facts or representations described in the application

change after the exemption is granted, the exemption will cease to

apply as of the date of such change. In the event of any such change,

application for a new exemption may be made to the Department.

Signed at Washington, DC, this 7th day of June, 1994.

Ivan Strasfeld,

Director of Exemption Determinations, Pension and Welfare Benefits

Administration, U.S. Department of Labor.

[FR Doc. 94-14170 Filed 6-9-94; 8:45 am]

BILLING CODE 4510-29-M